Is it permissible to redeem unit trusts from the following equity funds?

I will like to redeem these unit trusts. If there is profits on the redemption, is this permissible to use?

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

In principle, an investment scheme will have essential three parts which must be Sharī’ah compliant for the entire scheme to be acceptable in Sharī’ah.

1) Concept

2) Contracts

3) Implementation of the contracts

In most of the queries we attend to, we can only judge the concept of the scheme. There are two possibilities for the concepts behind the Unit Trust Funds in Oasis Crescent Equity Fund and Al Baraka Equity Fund.

It could be a Mushārakah (partnership) model. Mushārakah is a contract between partners to invest capital to a Shari’āh compliant enterprise resulting in shareholding in that enterprise. Profits generated in the enterprise are shared in accordance to the terms of the Mushārakah agreement, while losses are distributed in proportion to each partner’s capital investment. This concept is essentially acceptable in Sharī’ah.

If the above concept with all the particulars governs the unit trust fund, then it will be permissible to redeem profits over and above the principal amount.

It could be an Iqrādh (loan) Model. If the scheme is not designed as we have outlined above, i.e It does not give actual shareholding in the particular company, but rather entitles a percentage right from the enterprise, then this would mean that money is being merely lent as a loan and a profit is being paid out thereof. This would be flagrant riba’. This concept is completely unacceptable in Sharī’ah. Any profit from the unit trust would not be permissible. You would only be entitled to the principal amount.

Once we have established which model is being utilized by the scheme, we will need to see the contract which the investor signs to ascertain its Sharī’ah Compliancy. Finally, a review of how that contract is carried out will help us determine the permissible or impermissible nature of the entire scheme.

We require further information on the mechanics of the scheme in order to authorise the Sharī’ah Compliancy of the products in question.

The profit can only be taken if the scheme is Sharī’ah compliant. Nevertheless, you have a right to the principal amount.